Moscow Shops Forced To Close As Ukraine War Causes Russian Economy Decline

Global retailers have closed their Russian outlets as sanctions make it impossible to import goods and the collapse of the Russian economy means once-wealthy consumers no longer can afford western goods. 

Putin has promoted Russian brands, but they are unable to import fabrics and other accessories, making it difficult for them to pick up demand. JL 

Ann Simmons reports in the Wall Street Journal:

Western sanctions leveled against Russia have led hundreds of U.S. and European stores to close their doors across the country (including) high-end Western brands such as Prada, Cartier, Dior, Gucci and Louis Vuitton. These days, many shops have bare shelves, empty showcases and fewer mannequins. Would-be visitors are greeted by signs such as “closed for technical reasons.” The departure of retailers would result in a 40% to 50% vacancy rate at Russia’s shopping centers.

One of the most conspicuous symbols of Russian wealth is feeling the cost of Russia’s invasion of Ukraine.

GUM, a 120-year-old shopping mall that sits opposite the Kremlin on Moscow’s Red Square, was once a bustling hub for high-end Western brands such as Prada, Cartier, Dior, Gucci and Louis Vuitton, and was frequented by well-heeled Russians and foreign visitors.

But Western sanctions leveled against Russia have led hundreds of U.S. and European stores to close their doors across the country, including at GUM and other upscale retailers.

For years, Russia’s most famous mall showed how Moscow could rival Western capitals in luxury services, but the shift in its fortunes embodies Russia’s growing isolation from the global economy.

 

“For luxury consumers, the closure of their favorite brands such as Chanel, Gucci, LV and Dior has created a challenge—now they need to fly to other countries to shop, which is a bigger problem since these brands have no direct equivalents on the Russian market and they are unlikely to appear in the coming years,” said Marina Malakhatko, head of the retail department at CORE.XP, a Russian commercial real-estate consulting firm.

GUM provided the backdrop for Monday’s commemoration of the Soviet victory over Nazi Germany, when thousands of troops and hundreds of tanks and aircraft paraded across Red Square.

The mall’s broad, avenue-like passages cover three levels and are illuminated by chandeliers, and hosted stores including Britain’s Burberry, Italy’s Emporio Armani, France’s Hermès International, Switzerland’s Omega and Tiffany & Co. of the U.S. Those are now gone.

These days, many shops have bare shelves, empty showcases and fewer mannequins. Would-be visitors are greeted by signs such as “closed for technical reasons,” or “temporarily shut.” Many stores have apologized for their closures on their websites or on social media.

More than 60,000 customers used to visit GUM each day before the closures, according to the website of Russia’s Bosco di Ciliegi, the main GUM shareholder. Now there are noticeably fewer.

Nadezhda Gubareva, manager of the mall’s customer information center, said just over two dozen stores inside the mall have closed since Feb. 24, when Russia invaded Ukraine. “Foreigners are our favorite guests,” she said. “Now there are not so many of them.”

Ms. Gubareva said she wasn’t authorized to discuss the departure of Western brands from GUM. Bosco didn’t respond to requests for comment. GUM declined to comment.

On a recent afternoon, mall visitors came to sample GUM’s legendary handmade ice-cream served in a waffle cup, or to take selfies at the mall’s fountain in the heart of the gallery.

Few were willing to discuss the Kremlin’s war in Ukraine—which both state and independent surveys show most Russians support—or why some of their favorite retailers closed.

“I would say it’s more of an emotional feeling of difficulty, rather than any issues in terms of what to wear or whether we’ll survive one season without a collection or not,” said Elvina Dvornikova, an interior designer.

Ms. Dvornikova said she regularly shopped for clothes at Prada, Escada and Armani and would buy new collections each season. She particularly loved Chanel clothing lines because “their delicious tweed, feminine collections and business line” don’t wrinkle, she said. Her husband has tracksuits from the now-closed Armani Exchange and her children would miss buying outfits from Spain’s Mayoral and Italy’s Alessandro Borelli, she said.

Ms. Dvornikova declined to comment on the politics behind the international sanctions.

The United Nations estimates Russia’s invasion has caused more than 3,000 civilian deaths. Western officials accuse Russia of war crimes. Moscow says it hasn’t intentionally targeted innocent people.

Roman Anatolyevich, a civil servant, sat on a second-floor bench near a closed Hermès store where he once bought his girlfriend a scarf for International Women’s Day.

“I see this as another opportunity for domestic manufacturers to replace [these brands] and fill the newly available niche,” he said.

Sergei Krivosheyev, a driver visiting GUM for the first time, lamented “too bad that all over the world everything is open, but everything is closed here. And it’s my first time in Moscow.”

Shopping centers across the country are feeling the impact of disappearing Western retail brands.

Bulat Shakirov, president of the Union of Shopping Centers, which represents mall owners in Russia, Belarus and Kazakhstan, said that in a worst-case scenario the departure of retailers or the halting of their development would result in a 40% to 50% vacancy rate at Russia’s shopping centers.

Russian President Vladimir Putin told a videoconference with government officials in March that the pullout created “a unique opportunity to develop our own production.”

Senior government officials echo the Kremlin leader’s assessment.

“Now is the time for Russian productions and brands to begin to grow [and] new chains of clothing and footwear to begin to appear,” Denis Manturov, Russia’s minister of Industry and trade, said at the same government meeting, adding that Russia has 1,000 domestic brands of clothing, footwear and accessories.

Georgy Rostovshchikov, president of Russia’s International Association of Buyers, said “over the past five to seven years, the influence of Russian local brands has increased.”

But traders in Russia were already facing challenges.

“The difficulties are quite huge because most retailers do not have any strategic stocks of goods,” said Ms. Malakhatko of CORE. EP, which works with 500 retailers.

The closure of airspace to Russian aircraft in Europe and North America, and reciprocal bans by Moscow, are hindering imports and deliveries, Ms. Malakhatko added, because many Russian retailers buy fabrics in Europe and accessories in China.

More than 60,000 customers used to visit GUM each day before the closures, but now visitors walk past closed boutiques.PHOTO: AGENCE FRANCE-PRESSE/GETTY IMAGES

Some Russian business leaders have started seeking alternatives to Western brands.

The Russian Council of Shopping Centers, which represents developers, shopping center owners and retail chain operators, said in March that it was counting on China, India, Iran and Turkey to fill the void caused by Western departures.

Mr. Shakirov said members of his union were trying to attract new overseas partners to develop new trademarks and negotiations were already under way with representatives in Turkey, China, India and Brazil.

“Unfortunately, transactions are not made so quickly. It takes time, several months,” he said, adding he hoped the first contracts would soon be signed.

Back inside GUM, Tatyana Zinchenko, director of a real estate agency in Russia’s southern Siberian Altai region, said she was disappointed that stores such as Cartier had closed. Her husband gifted her a gold Cartier bracelet and she also has a ring from brand’s the prestigious Juste un Clou jewelry collection, she said.

Still, the closure of high-end Western stores wasn’t the end of the world, said Ms. Zinchenko, who declined to express views about the war in Ukraine.

“We’ll survive, we’ll survive,” she said, giggling. “It’s not like we’re saying ‘Lord, what are we now without Cartier, how will we live?’ ”

Mr. Rostovshchikov said some of his female colleagues were ready “to burn their Chanel bags in protest because you can’t treat Russian retail like that,” he said. “Who fed these [retail] houses for all these years? This attitude toward our market is very unpleasant.”